WEAPONS COMPANIES STILL THRIVE

New York Times News ServiceCHICAGO TRIBUNE

A company whose chairman was President Ronald Reagan's defense secretary teamed up with a Canadian arms dealer and some enterprising officials in the former Soviet republic of Belarus in a most unusual arms deal, financed in secret by the Pentagon.

The deal came to light when the sun rose Monday on a huge Russian-made transport plane parked within sight of an interstate highway in Huntsville, Ala.

Its cargo: Components of the S-300, the Russian equivalent of the Patriot missile defense system. The buyer: The Defense Intelligence Agency, the Pentagon's chief military intelligence branch.

The broker: A company called BDM International, whose chairman is one of Washington's most powerful government officials-turned-businessmen, Frank Carlucci, the former secretary of defense and national security adviser. The operation to obtain the S-300 was a secret mission paid for with classified financing, said government officials, arms dealers and defense analysts.

It began two years ago when BDM, based in McLean, Va., won a lucrative and secret Pentagon competition to acquire the S-300 for U.S. intelligence agencies, which want to study it.

The effort to obtain the S-300 illustrates the workings of an arcane part of the Pentagon, in which private companies and intelligence operatives overseas try to take the "opportunity to acquire and exploit major, state-of-the-art weapons systems," as Keith Hall, the deputy assistant secretary of defense for intelligence, told Congress last year.

And the way the Pentagon obtained it-with the help of a weapons dealer who played a role a decade ago in the Iran-contra affair-shows that the international arms bazaar still thrives after the Cold War.

BDM's majority owner is the Carlyle Group, an investment company whose principals include Carlucci and James Baker III, the former secretary of state, treasury secretary and White House chief of staff.

The Carlyle Group, a kind of investment boutique, puts its deals together with a blend of businessmen and former top government officials, including Richard Darman, Reagan's budget director, and David Rubenstein from the Jimmy Carter White House.

While the defense industry has been shrinking, Carlyle has been buying and selling, focusing on specialized contractors-like BDM, which Carlyle acquired in 1990-that know how to make money in the post-Cold War world.

Participants like Baker and Carlucci give the company access to power and knowledge of how power works.

Another asset is BDM's special relationship with the Pentagon. Since the 1980s, the company has had a "basic ordering agreement," which in essence gives the company an open-ended contract to acquire foreign military technology.

Some of BDM's competitors see that as unfair.

"They seem to be a favorite supplier" for the Defense Department and the Defense Intelligence Agency, said David Hogan, a former Pentagon official and an international trader who said he competed for but lost the S-300 contract.

The Pentagon's spokesman, Kenneth Bacon, confirmed that BDM had a basic ordering agreement for acquiring foreign military equipment that was reviewed by agency auditors. He said the Pentagon was "concerned about any allegations of unfairness and will review them as appropriate."

Competitors like Hogan question whether the company's excellent connections have won it preferential treatment in a market with a potential for huge profits.

BDM anticipates at least $750 million in revenue this year, an increase of about $200 million from last year.